22
PRIIPs and the Debt Capital Markets. Practical Considerations for DCM Practitioners. 1 February 2017 PRIIPs and the Debt Capital Markets. Practical Considerations for DCM Practitioners. Introduction Regulation (EU) No. 1286/2014 1 on key information documents for packaged retail and insurance-based investment products (PRIIPs) (the “Regulation”) entered into force on 29 December 2014. Its provisions will apply directly in all EEA Member States 2 from 1 January 2018. The Regulation introduces a pre-contractual disclosure regime for packaged retail and insurance-based investment products (“PRIIPs”), with the aim of helping retail investors to understand and compare the key features and risks of PRIIPs. The key obligations established pursuant to the Regulation are: > an entity that falls within the definition of a “PRIIP manufacturer” will be required to produce a “key information document” (a “KID”) and publish it on its website before a PRIIP is made available to retail investors; > any person advising retail investors in relation to a PRIIP or selling them a PRIIP must provide those investors with the KID in good time before they are bound by any contract or offer relating to the PRIIP; > a PRIIP manufacturer must regularly review and update the KID; and > a PRIIP manufacturer and the person advising on or selling the PRIIP must establish appropriate complaint and redress procedures for retail investors. This note considers the implications of the Regulation on the primary issuance of bonds and, in particular, steps that market participants may wish to consider to prevent their transactions from being within the scope of the Regulation. 1 Regulation (EU) No. 1286/2014 of the European Parliament and of the Council of 26 November on key information documents for packaged retail and insurance-based investment products (PRIIPs) [2014] OJ L352. 2 References in this note to “Member States” are to the Member States of the European Union and the European Economic Area (the “EEA”). Contents Introduction ....................... 1 Scope of the Regulation ... 2 What is a PRIIP? ........... 2 Who are “retail investors” for the purpose of the Regulation? ................... 4 What would be the practical implications of restricting the investor base to MiFID II non- retail? ......................... 4 When is a PRIIP “made available” to retail investors? .................. 5 Affected parties ................. 5 Why not prepare a KID? ... 6 Grandfathering .............. 6 Secondary market trading ...................................... 7 What measures can market participants consider in order to remain outside of the scope of the Regulation?....................... 7 Selling restrictions and legends .......................... 8 MTN Programmes ..... 8 Standalone Bonds ... 10 Conclusion ...................... 10 Appendix 1 ...................... 12 Key contacts ................... 22

PRIIPs and the Debt Capital Markets. Practical ... and the Deb… · 1/1/2018  · PRIIPs and the Debt Capital Markets. Practical Considerations for DCM Practitioners. 1 ... target

  • Upload
    others

  • View
    0

  • Download
    0

Embed Size (px)

Citation preview

Page 1: PRIIPs and the Debt Capital Markets. Practical ... and the Deb… · 1/1/2018  · PRIIPs and the Debt Capital Markets. Practical Considerations for DCM Practitioners. 1 ... target

PRIIPs and the Debt Capital Markets. Practical Considerations for DCM Practitioners. 1

February 2017

PRIIPs and the Debt Capital Markets. Practical Considerations for DCM Practitioners.

Introduction

Regulation (EU) No. 1286/20141 on key information documents for packaged

retail and insurance-based investment products (PRIIPs) (the “Regulation”)

entered into force on 29 December 2014. Its provisions will apply directly in all

EEA Member States2 from 1 January 2018.

The Regulation introduces a pre-contractual disclosure regime for packaged

retail and insurance-based investment products (“PRIIPs”), with the aim of

helping retail investors to understand and compare the key features and risks

of PRIIPs.

The key obligations established pursuant to the Regulation are:

> an entity that falls within the definition of a “PRIIP manufacturer” will be

required to produce a “key information document” (a “KID”) and publish

it on its website before a PRIIP is made available to retail investors;

> any person advising retail investors in relation to a PRIIP or selling them

a PRIIP must provide those investors with the KID in good time before

they are bound by any contract or offer relating to the PRIIP;

> a PRIIP manufacturer must regularly review and update the KID; and

> a PRIIP manufacturer and the person advising on or selling the PRIIP

must establish appropriate complaint and redress procedures for retail

investors.

This note considers the implications of the Regulation on the primary issuance

of bonds and, in particular, steps that market participants may wish to consider

to prevent their transactions from being within the scope of the Regulation.

1 Regulation (EU) No. 1286/2014 of the European Parliament and of the Council of 26 November

on key information documents for packaged retail and insurance-based investment products (PRIIPs) [2014] OJ L352.

2 References in this note to “Member States” are to the Member States of the European Union and the European Economic Area (the “EEA”).

Contents Introduction ....................... 1

Scope of the Regulation ... 2

What is a PRIIP? ........... 2

Who are “retail investors” for the purpose of the Regulation? ................... 4

What would be the practical implications of restricting the investor base to MiFID II non-retail? ......................... 4

When is a PRIIP “made available” to retail investors? .................. 5

Affected parties ................. 5

Why not prepare a KID? ... 6

Grandfathering .............. 6

Secondary market trading ...................................... 7

What measures can market participants consider in order to remain outside of the scope of the Regulation? ....................... 7

Selling restrictions and legends .......................... 8

MTN Programmes ..... 8

Standalone Bonds ... 10

Conclusion ...................... 10

Appendix 1 ...................... 12

Key contacts ................... 22

Page 2: PRIIPs and the Debt Capital Markets. Practical ... and the Deb… · 1/1/2018  · PRIIPs and the Debt Capital Markets. Practical Considerations for DCM Practitioners. 1 ... target

PRIIPs and the Debt Capital Markets. Practical Considerations for DCM Practitioners 2

Scope of the Regulation

The obligations under the Regulation only apply where the investment product

in question constitutes a PRIIP and is marketed, distributed and/or sold to one

or more retail investors.

The defined product scope is such that a number of products that would

ordinarily be considered to be “plain vanilla” and not “packaged” products may

fall within the scope of the Regulation if they are marketed, offered, distributed

and/or sold to a retail investor. There are two key elements to take into account

in determining whether a product will be caught by the Regulation; first, is the

product “packaged” and, secondly, is it being “made available to retail”?

What is a PRIIP?

The term “packaged retail and insurance-based investment product” or “PRIIP”

captures any product that is:

> a packaged retail investment product (a “PRIP”); and/or

> an insurance-based investment product.

Insurance-based investment products are outside the scope of this note.

A “PRIP” is defined in the Regulation as “an investment…where, regardless of

the legal form of the investment, the amount repayable to the retail investor is

subject to fluctuations because of exposure to reference values or to the

performance of one or more assets which are not directly purchased by the

retail investor.”3

The definitions are broad, economic-based and, while the Regulation expressly

identifies certain products to which it does not apply, it does not expressly

identify or list the types of products that are in scope.

The European Commission (the “Commission”) and the European

Supervisory Authorities (the “ESAs”)4 have confirmed that they will not provide

any more precise guidance on what will be in or out of scope. This has been

deferred to the national competent authorities which may provide such

guidance in due course. The Financial Conduct Authority in the UK (the “FCA”)

is expected to publish a policy statement on PRIIPs in the first half of 2017,

however we do not anticipate that this will provide further guidance on product

scope.

What do we know about the scope in relation to plain vanilla bonds?

The Regulation itself contains (in Article 2) certain exceptions from, and

clarifications to, the application of the Regulation, including an exception in

Article 2(2)(c) for “deposits other than structured deposits”. For this purpose,

3 Article 4(1) of the Regulation. 4 The European Supervisory Authorities are comprised of the European Banking Authority

(“EBA”), the European Insurance and Occupational Pensions Authority (“EIOPA”) and the European Securities and Markets Authority (“ESMA”).

Page 3: PRIIPs and the Debt Capital Markets. Practical ... and the Deb… · 1/1/2018  · PRIIPs and the Debt Capital Markets. Practical Considerations for DCM Practitioners. 1 ... target

PRIIPs and the Debt Capital Markets. Practical Considerations for DCM Practitioners 3

“structured deposits” has the meaning given to it in MiFID II5 at point (43) Article

4(1). That is, broadly, a deposit for which the payment of interest or any

premium is determined according to a formula which is linked to certain factors,

such as an index (other than an interest rate index such as EURIBOR or

LIBOR).

Although the exception in Article 2(2)(c) refers to deposits only, it is difficult to

envisage fixed rate bonds that redeem at par with no other special features

coming within the scope of the PRIP definition as there would typically be no

“… exposure to reference values or to the performance of one or more

assets …”.

The case may be less clear in respect of floating rate notes. However, for those

that redeem at par and which pay interest at a rate equal to LIBOR, EURIBOR

(or some other interest rate benchmark) plus a spread, although the amount

payable to investors is subject to fluctuation, it is arguable that these products

should not be treated as PRIPs either, as it would be inconsistent to treat

floating rate bonds as PRIPs but not floating rate deposits.

Statements from the Commission and ESAs at a workshop in July 2016 were

also consistent with this view. They considered there should be no obligation

to produce a KID in the case of products with a fixed or floating rate of interest.

Even so, these statements should be interpreted narrowly as the ESAs’

Discussion Paper on KIDs for PRIIPs of November 20146 indicates that, whilst

the MiFID II definition of a structured deposit excludes variable rate deposits

which are “directly” linked to an interest rate index (e.g. EURIBOR), those

deposits which contain caps and/or have returns which are linked in a non-

linear way to the underlying interest rate, should, in the view of the ESAs, be

treated as falling within the scope of the Regulation.

In relation to products where the payments are only exposed to the fluctuation

of a reference value or asset in limited circumstances, such as on an early

redemption, the safer view is that such products are also intended to be

captured by the definition of PRIP. Examples of such investments include

securities with a make-whole amount payable on early redemption (for

example, a spens clause with an amount linked to treasury, Gilt or bund rates)

notwithstanding that such securities may pay a fixed rate coupon and par at

maturity.

Further exceptions to the Regulation that will be of interest to debt capital

markets practitioners include exceptions for non-equity securities issued by a

Member State or one of their regional or local authorities, by public international

bodies of which one or more Member States are members or by the European

Central Bank or by the central banks of the Member States. Debt securities

5 Directive 2014/65/EU of the European Parliament and of the Council of 15 May 2014 on markets

in financial instruments [2014] OJ L173/349 (“MiFID II”). 6 See 1.6.2 Products within the scope of the PRIIPs Regulation.

Page 4: PRIIPs and the Debt Capital Markets. Practical ... and the Deb… · 1/1/2018  · PRIIPs and the Debt Capital Markets. Practical Considerations for DCM Practitioners. 1 ... target

PRIIPs and the Debt Capital Markets. Practical Considerations for DCM Practitioners 4

unconditionally and irrevocably guaranteed by a Member State or by one of a

Member State’s regional or local authorities are also excluded.7

The characterisation of a seemingly plain vanilla bond as a PRIP will therefore

depend on the precise terms of the bond itself. The lack of clarity around the

definition of a PRIP and the consequences which flow from any

mischaracterisation may lead issuers – particularly those who only wish to

target wholesale investors – to avoid the need for complicated and uncertain

analysis on each issue altogether, by targeting their issues towards non-retail

investors only. Manufacturers and/or persons advising on, or selling, products

which could potentially be “packaged” in circumstances where no KID will be

produced would therefore need to consider steps to prevent bond issuances

from being made available to retail investors.

Who are “retail investors” for the purpose of the Regulation?

The Regulation defines a “retail investor” as:

> any person classified as a “retail client” under MiFID II (i.e. a client who

is not a professional client8); and

> any person classified as a “customer” under the IMD9 (where that person

would not also qualify as a professional client under MiFID II).

Note:

The definition of “retail” under the Regulation is not aligned with the definition

of “retail” under the Directive 2003/71/EC (the “Prospectus Directive”) regime

for debt issuances. Accordingly, bonds which are considered “wholesale”

under the Prospectus Directive (i.e. bonds with denominations of at least

EUR100,000) could still be “retail” (and potentially fall within the definition of a

PRIP) under the Regulation. Whether a product is “retail” for the purpose of

PRIIPs depends upon the regulatory classification of the potential investors.

What would be the practical implications of restricting the investor base

to MiFID II non-retail?

As debt issues listed on the regulated market will be regarded as “wholesale”

under the Prospectus Directive provided that they are structured with a

minimum denomination of at least EUR100,000 (which permits an issuer to

benefit from the alleviated disclosure regime for wholesale only issuance),

market participants are, in most cases, unused to having to consider the

regulatory categorisation of potential investors. A move to categorising the

investor base will require more sophisticated internal controls for primary

7 Article 2(2)(d) of the Regulation. 8 Article 4.(1)(10) and 4.(1)(11) of MiFID II. MIFID II introduces certain changes to the

classification of a “retail client” which will potentially mean that a wider set of investors will need to be provided with the KID. For example, local public authorities and municipalities are classified as “retail clients” under MiFID II, albeit with the ability to request to “opt up” to elective professional client status.

9 Directive 2002/92/EC of the European Parliament and the Council of 9 December 2002 on insurance mediation [2003] OJ L913 (the “IMD”).

Page 5: PRIIPs and the Debt Capital Markets. Practical ... and the Deb… · 1/1/2018  · PRIIPs and the Debt Capital Markets. Practical Considerations for DCM Practitioners. 1 ... target

PRIIPs and the Debt Capital Markets. Practical Considerations for DCM Practitioners 5

distributors, including, for example, additional diligence on the order book for

the primary distribution. MiFID II will introduce, from 3 January 2018, a new

product governance regime (see “What is product governance?”) which will

require investment firms in the EEA to categorise their end client and determine

a product’s compatibility with the chosen distribution strategy and identified

target market. Market participants will therefore be required, in any event, to

implement internal controls based upon product and investor base

categorisation in accordance with MiFID II for this purpose. Given this, the

introduction of a PRIIPs restriction based upon investor categorisation may not

create a significant additional compliance burden in most cases.

When is a PRIIP “made available” to retail investors?

A KID is required whenever a PRIIP is “made available” to retail investors. This

captures the marketing, offer and sale of a PRIIP as well as the entering into

of a bilateral contract in relation to a PRIIP with a retail investor.

Those involved in a primary issue, including the issuer, the underwriters and

initial investors (if and when they on-sell) will all be “making the issue available”

and, accordingly, will be concerned to ensure that they remove retail investors

from the distribution, where no KID is being prepared.

Affected parties

As the Regulation applies where a PRIIP is made available to retail investors,

anyone issuing or advising on, or selling, a PRIIP must comply with the

Regulation. The primary obligation to prepare a KID falls on the manufacturer.

The Regulation offers no guidance as to the meaning of “manufacturer” in this

context but the Recitals to the Regulation provide a non-exhaustive illustrative

list of types of manufacturers. In most cases, the manufacturer will be the issuer

but there may be some circumstances, particularly if there is more than one

entity involved in the design and structuring and/or issuance of the PRIIP

(unlikely in the case of a plain vanilla bond), or where the issuer is an SPV,

where some further analysis will be needed.

In addition to the obligations imposed upon the manufacturer, any entity selling,

or advising on, a PRIIP has a distinct and separate obligation to provide retail

investors with the KID before selling a PRIIP to them, and to establish

appropriate complaint and redress procedures for retail investors.

As a result, issuers and those underwriting and selling products which, if

offered to retail investors, would be PRIIPs will be affected by the Regulation

and will be concerned to ensure either (a) that the relevant product is not made

available to retail investors or (b) where it is so made available, that a KID is

produced by the manufacturer and kept up to date.

What is product governance?

“Product governance” is an umbrella term covering requirements relating to the design, approval, marketing and ongoing management of investment products, which will be imposed on investment firms which manufacture and distribute such products, to ensure that those firms act in their clients’ best interests.

MiFID II introduces a new product governance regime, as part of its investor protection framework, with product governance requirements set out chiefly in Article 16(3) and Article 24(2) of MiFID II (and Articles 9 and 10 of the MiFID II Delegated Directive). ESMA has published draft guidelines on product governance, which focus on target market assessment, and are expected to be finalised in the first half of this year.

In the UK, the FCA has published the draft rules to implement the regime in a new FCA Handbook Chapter entitled PROD, as detailed in Appendix 1 to the FCA Consultation Paper CP16/29.

Manufacturers and distributors are required to comply with applicable product governance requirements, in a way that is “appropriate and proportionate”, taking into account, among other things, the target market for the product.

The product governance rules apply irrespective of the categorisation of the end client.

Page 6: PRIIPs and the Debt Capital Markets. Practical ... and the Deb… · 1/1/2018  · PRIIPs and the Debt Capital Markets. Practical Considerations for DCM Practitioners. 1 ... target

PRIIPs and the Debt Capital Markets. Practical Considerations for DCM Practitioners 6

Why not prepare a KID?

A manufacturer is obliged to draw up and publish a KID prior to a PRIIP being

made available to retail investors. The KID must be a short, concisely-written

document10 the contents of which will be precisely prescribed to provide key

information about the investment product to which it relates. The KID will need

to include a summary risk indicator and performance scenarios, among other

elements. The PRIIP manufacturer will also be required regularly to review the

KID and revise and republish it as necessary. The cost of preparation and of

the ongoing review of the KID will need to be factored into any determination

of costs for the issue of such products.

A PRIIPs manufacturer will also need to consider its potential liability for any

relevant KID. The manufacturer will potentially incur civil liability where the KID

is misleading, inaccurate or inconsistent when compared with the relevant parts

of the legally binding, pre-contractual and contractual documents or where it is

inconsistent with the form and content requirements prescribed for the KID.

The PRIIPs manufacturer will also need to consider the potential effectiveness

of any risk factors, disclaimers, limitation clauses and other contractual clauses

in both pre-contractual and contractual documents. A retail investor may claim

damages for loss against the manufacturer, resulting from its reliance on the

KID, in accordance with national law. The manufacturer will therefore be

potentially exposed to different civil liability regimes in relevant Member States.

It seems likely that most DCM participants will wish to avoid the additional cost

and liability implied by falling within the scope of the Regulation. This will need

to be weighed up against any marketing or pricing advantage arising from not

excluding MiFID II retail clients/IMD customers.

Grandfathering

The Regulation does not include any express grandfathering provisions.

However, the activities giving rise to the requirement to produce/provide a KID

would need to occur after the date of application of the Regulation for them to

be within its scope. Accordingly, it will be hard to argue that issuers and

underwriters participating in the primary distribution of a bond during 2017 and

which concludes prior to the date of application of the Regulation (1 January

2018) are, for the purpose of the Regulation, making the bonds available to

retail investors.

The Regulation states, in Article 5, that the PRIIP manufacturer must draw up

a KID wherever a PRIIP is made available to retail. In addition, Article 13

requires that a person advising on, or selling, a PRIIP shall provide retail

investors with the KID in good time before those retail investors are bound by

any contract or offer relating to that PRIIP.

If, as in the example above, the relevant offer concludes prior to 1 January

2018 but after that date a third party wants to offer or sell the relevant security

10 Article 6(4) and Article 8 of the Regulation.

Page 7: PRIIPs and the Debt Capital Markets. Practical ... and the Deb… · 1/1/2018  · PRIIPs and the Debt Capital Markets. Practical Considerations for DCM Practitioners. 1 ... target

PRIIPs and the Debt Capital Markets. Practical Considerations for DCM Practitioners 7

to a MiFID retail client/IMD customer, that third party, if the security is a PRIIP,

would need to comply with Article 13 of the Regulation and provide the relevant

retail investor(s) with a KID. However, as in this example, there is no KID, the

third party cannot offer or sell to the retail investor without breaching Article 13.

Provided that the issuer does not make the security available to retail investors

itself, the issuer will not be in breach of the Regulation.

Secondary market trading

Secondary market activities in relation to existing securities after 1 January

2018 are outside the scope of this note but should be analysed additionally in

light of the above. Parties advising on or selling bonds that are, or could

potentially be, PRIIPs will need to implement separate measures covering the

distribution of such products to MiFID II retail clients/IMD customers after the

primary distribution. Any such measures would need to apply to all such bonds

outstanding as at 1 January 2018 and not just those issued during 2017.

Manufacturers of products that, following 1 January 2018, are, or could be,

PRIIPs will need to ensure they are not themselves making a PRIIP available

to retail investors in circumstances where they will not prepare a KID. The fact

that there will be no KID for such product should be significant protection in

itself to protect the manufacturer from the consequences of any third party

concluding a sale of such product with a retail investor in breach of Article 13.

This is on the basis that an unlawful act by a third party, over which the issuer

has no control, should not amount to the product being "made available" to

retail by the issuer without a KID in contravention of the Regulation. However,

this is an evolving area and issuers and those involved in primary issuance will

probably wish to add to this protection additional measures designed to

minimise the risk of distribution of products that are issued without a KID to

retail (see “What measures can market participants consider in order to remain

outside of the scope of the Regulation?” below).

What measures can market participants consider in order to

remain outside of the scope of the Regulation?

Given the uncertainties around what may or may not constitute PRIIPs, where

the issuer will not prepare a KID, the issuer and underwriters would be advised

to consider:

> the inclusion of appropriate selling restrictions and legends in relevant

documentation (including marketing materials, prospectuses and other

contractual, offer and disclosure documentation);

> their compliance processes and procedures (including process and

procedures relating to marketing, marketing documentation, sales and

publication activities) to ensure that the product is not made available to,

or accessible by, a retail investor; and

Page 8: PRIIPs and the Debt Capital Markets. Practical ... and the Deb… · 1/1/2018  · PRIIPs and the Debt Capital Markets. Practical Considerations for DCM Practitioners. 1 ... target

PRIIPs and the Debt Capital Markets. Practical Considerations for DCM Practitioners 8

> their arrangements and agreements with distributors and other

intermediaries (including possible inclusion of appropriate restrictions

and representations in relevant distribution agreements).

Such measures will assist issuers and underwriters in preventing such bonds

being “made available” to EEA retail investors without a KID in contravention

of the Regulation.

The remainder of this note will go on to consider the inclusion of appropriate

selling restrictions and legends in relevant documentation.

Selling restrictions and legends

The International Capital Market Association (“ICMA”) has developed

suggested language to be included in documentation for vanilla bonds issued

by in-scope issuers11 that may or may not constitute PRIIPs, where the issuer

will not prepare a KID. The suggested language consists of:

> Programme options: consisting of (i) Option 1 - for use where all issues

under the programme are intended to be sold to non-retail investors only;

and (ii) Option 2 - for use where flexibility is required for (1) “non-

packaged” issues under a programme to be sold to retail investors

and/or (2) “packaged” issues under a programme with a KID to be sold

to retail investors; and

> Standalone language.

See Appendix 1 for the ICMA materials.

MTN Programmes

Issuers updating MTN programmes from 1 January 2017 may wish to consider

taking action now, given that in most cases such programmes will remain valid

for issuance after 1 January 2018.

Issuers will need to form a view now as to whether to include the PRIIPs selling

restrictions and legends in their programme documentation and, if so, whether

to choose Option 1 or Option 2 from the ICMA’s suggested drafting below.

Option 1

This option introduces a new selling restriction into a programme to apply to all

offers concluded on or after 1 January 2018. It also includes a draft legend to

be inserted on the front cover of the Base Prospectus and for the pro-forma

Final Terms to apply from 1 January 2018.

One clear advantage of Option 1 is that it allows an issuer to avoid having to

undertake an issue-by-issue analysis of whether a particular product is a PRIIP.

11 Debt securities issued by EEA Member States or one of their regional or local authorities, public

international bodies of which one or more EEA Member States are members, by the European Central Bank or by the central banks of the Member States, and securities unconditionally and irrevocably guaranteed by a Member State or by a Member State’s regional or local authorities are excluded from the scope of the PRIIPs Regulation.

Page 9: PRIIPs and the Debt Capital Markets. Practical ... and the Deb… · 1/1/2018  · PRIIPs and the Debt Capital Markets. Practical Considerations for DCM Practitioners. 1 ... target

PRIIPs and the Debt Capital Markets. Practical Considerations for DCM Practitioners 9

As outlined above, this determination can be far from straightforward. An issuer

may well be reluctant to determine that a product is not “packaged” and, for

that reason, does not require a KID. Instead, the need for a KID can be avoided

through a combination of measures (see “What measures can market

participants consider in order to remain outside of the scope of the Regulation?”

above) including the imposition of restrictions on offers and sales to retail

investors. Hardwiring the restrictions into a programme also avoids the risk of

“operator error” on an issue-by-issue basis, something which may be

particularly important on more actively-used programmes.

In selecting Option 1, market participants will need to consider: (i) whether they

have procedures in place to police a restriction based on investor classification

rather than solely on the current EUR100,000 minimum denomination, (which

may be practically more complex for market participants to manage and

monitor on an ongoing basis) and (ii) whether the definition of retail

client/customer under MiFID II and IMD excludes potential investors who may

be important to the success of the distribution strategy. However, given the

current Prospectus Directive public offer restrictions (to be amended by the

new prospectus regulation in due course) and the direction of travel of MiFID II

and the new product governance regime, quaere whether these will represent

any meaningful disadvantage, particularly from January 2018. See “What is

product governance?” above for further discussion of product governance.

As described above, the Regulation does not envisage any grandfathering.

However, in our view, the activities giving rise to the requirement to produce a

KID would need to occur after the date of application of the Regulation for them

to be caught. Accordingly, the new regime should not apply to issuers and

underwriters participating in the primary distribution of a bond in 2017 where

the relevant activities will be completed prior to 1 January 2018 (in the absence

of any ongoing market-making obligation for the underwriters). In our view, it is

therefore not necessary to include the new selling restrictions or legends in

relation to primary distribution completed prior to the application of the

Regulation. Delayed application of the new selling restrictions will also give

market participants time to develop appropriate internal processes and

procedures to ensure compliance with the new restrictions. In addition,

implementing PRIIPs selling restrictions, and the inclusion of additional

legends, now in relation to such new transactions distributed prior to 1 January

2018 would be inconsistent with the restrictions applicable to other previously-

issued securities which will also be outstanding as at 1 January 2018.

Finally, as Option 1 (unlike Option 2) contemplates that there will be no retail

distribution at all, it could be useful in demonstrating that a lighter product

governance regime is appropriate under the proposed MiFID II product

governance regime (see “What is product governance?”) above.

Page 10: PRIIPs and the Debt Capital Markets. Practical ... and the Deb… · 1/1/2018  · PRIIPs and the Debt Capital Markets. Practical Considerations for DCM Practitioners. 1 ... target

PRIIPs and the Debt Capital Markets. Practical Considerations for DCM Practitioners 10

Option 2

This gives an issuer the flexibility to make a determination on an issue-by-issue

basis as to whether a bond, on its terms, would be “packaged” for the purposes

of the Regulation and therefore maintain a potentially wider investor base

where the relevant parties are sufficiently comfortable that an issuance is not

“packaged”.

This additional flexibility may be considered desirable but, as described above,

it implies risks for the manufacturer, and potentially the underwriters, if the

determination is made incorrectly post 1 January 2018 without a KID being

available. As noted above, there is a lack of clarity on the meaning of

“packaged” for the purpose of the Regulation and it is unlikely that an issuer

will be able to make this determination with any degree of confidence except in

the most straightforward of cases. Further, also as noted above, there may be

limited additional investor base benefits given the expected Prospectus

Regulation restrictions, when balanced against the potential benefits of being

able to demonstrate an exclusively non-retail target market for the purpose of

applying the MiFID II product governance regime proportionately.

Accordingly, the incorporation of this flexibility may have limited value but entail

risk if particular care is not taken in the drafting of the final terms for a given

issuance.

However, (i) if a programme only provides for the issuance of fixed or floating

rate notes which redeem at par and, in the case of floating rate notes, pay

interest at a rate equal to LIBOR or EURIBOR (or some other interest rate

benchmark) plus spread with no other features such as redemption at make-

whole, caps or floors, or (ii) if such issues are expected to be the most common

type of issuance under the programme, or (iii) if it is a programme which is used

only infrequently, then an issuer and underwriter(s) may be able to get

comfortable with this approach if sufficient controls are implemented for

decision-making at the time of each issue.

Standalone Bonds

Consistent with the approach recommended above in relation to MTN

Programmes, our view is that the ICMA draft selling restrictions and legends

should be included in standalone bond documentation for bonds issued after 1

January 2018 (and, if applicable, those issued towards the end of 2017 where

distribution will not be completed until after 1 January 2018).

Conclusion

Market practice in relation to the Regulation continues to evolve. As there is no

clear definition of what constitutes “packaged” for the purposes of the

Regulation, manufacturers and other market participants involved in the

primary issuance of bonds will need to consider a variety of measures to restrict

the availability of such bonds to retail investors in circumstances where no KID

Page 11: PRIIPs and the Debt Capital Markets. Practical ... and the Deb… · 1/1/2018  · PRIIPs and the Debt Capital Markets. Practical Considerations for DCM Practitioners. 1 ... target

PRIIPs and the Debt Capital Markets. Practical Considerations for DCM Practitioners 11

is produced. The inclusion of selling restrictions and legends will be one of a

number of measures that issuers and underwriters will need to consider for

MTN Programme and standalone bond documentation, on the basis of the

arguments summarised in this note. This decision cannot be taken in isolation

and market participants will need to consider this alongside the development

of appropriate measures to comply with the (new) MiFID II product governance

regime as well as anticipated amendments to the Prospectus Directive when it

is replaced by the new Prospectus Regulation.

Page 12: PRIIPs and the Debt Capital Markets. Practical ... and the Deb… · 1/1/2018  · PRIIPs and the Debt Capital Markets. Practical Considerations for DCM Practitioners. 1 ... target

PRIIPs and the Debt Capital Markets. Practical Considerations for DCM Practitioners 12

Appendix 1

Draft: 22 February 2017

PRIIPs – ICMA DRAFT SELLING RESTRICTIONS AND LEGENDS

INTRODUCTION

The PRIIPs Regulation is due to apply from 1 January 2018. The suggested

language set out below has been developed for vanilla bonds issued by in-

scope issuers1 that may or may not constitute “packaged” products under the

PRIIPs Regulation where the issuer will not prepare a KID2. As such, the

general approach envisages a restriction on sales and marketing to retail

investors in the EEA that would apply from 1 January 2018. Suggested legends

are also set out below, which are intended to complement the selling restriction

from 1 January 2018, but can also be considered for inclusion in documentation

prior to 1 January 2018.

The inclusion of selling restrictions and legends in relevant documentation is

only one measure of a range of measures that issuers and underwriters may

wish to take to prevent such bonds being made available to EEA retail investors

without a KID in contravention of the PRIIPs Regulation.

This language has been developed now to assist market participants in their

compliance with the PRIIPs Regulation when it applies. However, the PRIIPs

Regulation is a complex piece of legislation and a full understanding of its

implications for the vanilla bond market is still evolving. In addition, market

participants’ understanding of the MiFID II product governance regime, which

will apply from 3 January 2018 and could have an impact on language in vanilla

bond prospectuses, is still developing. In light of this an issuer may, in a

programme context, choose not to amend its programme documentation to

cater for the PRIIPs Regulation now, but it is highly likely that it would then

need to amend such documentation once market understanding has

developed and before it commences an offer of securities that will conclude on

or after 1 January 2018.

1 Debt securities issued by EEA Member States or one of their regional or local authorities, public

international bodies of which one or more EEA Member States are members, by the European Central Bank or by the central banks of the Member States and securities unconditionally and irrevocably guaranteed by a Member State or by a Member State’s regional or local authorities are excluded from the scope of the PRIIPs Regulation.

2 Although Option 2 below may be used where an issuer has prepared a KID, the assumption is that it will be unusual for an issuer of vanilla bonds to prepare a KID. If an issuer will prepare a KID for a particular issuance, it is likely that other language will need to be included in the relevant documentation in addition to the Option 2 language (for example, a representation that, as manufacturer, the issuer has prepared the KID in accordance with the PRIIPs Regulation).

Page 13: PRIIPs and the Debt Capital Markets. Practical ... and the Deb… · 1/1/2018  · PRIIPs and the Debt Capital Markets. Practical Considerations for DCM Practitioners. 1 ... target

PRIIPs and the Debt Capital Markets. Practical Considerations for DCM Practitioners 13

OVERVIEW OF SUGGESTED LANGUAGE

Programme

Option 1

Programme

Option 2

Standalone

Selling

Restriction

Include a new “no EEA

retail” restriction

applicable to offers

concluded on or after 1

January 2018

AND

Retain existing EEA

Prospectus Directive

(PD) restriction

applicable to offers

concluded before 1

January 20183 (if

needed).

As per Option 1,

BUT with language allowing the

new “no EEA retail” restriction

applicable to offers concluded on

or after 1 January 2018 to be

“switched off” for individual

drawdowns in the final

terms/pricing supplement (e.g.

where the issue is “non-packaged”)

AND Retain existing PD restriction

(if needed) to apply where new “no

EEA retail” restriction is “switched

off” on or after 1 January 2018 (as

well as for offers concluded before

1 January 2018, as per Option 1).

Also include a new provision in the

pro forma final terms/pricing

supplement allowing such “switch

off”.

For offers concluded

before 1 January 2018,

retain existing PD

restriction (if needed).

For offers concluded on

or after 1 January 2018,

parties to consider

whether to include a

new “no EEA retail”

restriction.

Legend in

Base

Prospectus/

Prospectus/

Offering

Circular

Include a new “no EEA

retail from 1 January

2018” legend.4

As per Option 1,

BUT include a reference to legend

in final terms/pricing supplement.

For offers concluded

before 1 January 2018,

parties to consider

whether to include new

“no EEA retail from 1

January 2018” legend.

For offers concluded on

or after 1 January 2018,

parties to consider

whether to include new

“no EEA retail” legend.

Legend in pro

forma final

terms/

pricing

supplement

Include new “no EEA

retail from 1 January

2018” legend in square

brackets.5

As per Option 1. N/A

3 There is no need to: (a) include references to the selling restriction applying from 1 January 2018;

or (b) retain any existing PD restriction, in base prospectuses/offering circulars dated on or after 1 January 2018.

4 There is no need to include a date reference in base prospectuses/offering circulars dated on or after 1 January 2018.

5 There is no need to include a date reference (and, for Option 1 only, square brackets) in pro forma final terms/pricing supplements in base prospectuses/offering circulars dated on or after 1 January 2018.

Page 14: PRIIPs and the Debt Capital Markets. Practical ... and the Deb… · 1/1/2018  · PRIIPs and the Debt Capital Markets. Practical Considerations for DCM Practitioners. 1 ... target

PRIIPs and the Debt Capital Markets. Practical Considerations for DCM Practitioners 14

Legend in

Final Terms/

Pricing

Supplement

For offers concluded

before 1 January 2018,

parties to consider

whether to include new

“no EEA retail from 1

January 2018” legend.

For offers concluded on

or after 1 January 2018,

include new “no EEA

retail” legend.

As per Option 1 for offers

concluded before 1 January 2018.

For offers concluded on or after 1

January 2018, the new “no EEA

retail” legend should be included

unless the new “no EEA retail”

restriction has been switched off

(and therefore sales to EEA retail

investors are possible).

N/A

Page 15: PRIIPs and the Debt Capital Markets. Practical ... and the Deb… · 1/1/2018  · PRIIPs and the Debt Capital Markets. Practical Considerations for DCM Practitioners. 1 ... target

PRIIPs and the Debt Capital Markets. Practical Considerations for DCM Practitioners 15

SUGGESTED LANGUAGE

PROGRAMME OPTION 1

BLANKET PROHIBITION ON MARKETING AND SALES TO EEA RETAIL

INVESTORS FROM 1 JANUARY 2018

Selling Restriction

Prohibition of Sales to EEA Retail Investors

[From 1 January 2018, each]/[Each]6 Dealer has represented and agreed, and

each further Dealer appointed under the Programme will be required to

represent and agree, that it has not offered, sold or otherwise made available

and will not offer, sell or otherwise make available any Notes which are the

subject of the offering contemplated by [the / this] [Offering Circular /

Prospectus] as completed by the Final Terms [(or Pricing Supplement, as the

case may be)]7 in relation thereto to any retail investor in the European

Economic Area. For the purposes of this provision:

a) the expression "retail investor" means a person who is one (or more) of

the following:

i. a retail client as defined in point (11) of Article 4(1) of Directive

2014/65/EU (as amended, "MiFID II"); or

ii. a customer within the meaning of Directive 2002/92/EC (as

amended, the "Insurance Mediation Directive"), where that

customer would not qualify as a professional client as defined in

point (10) of Article 4(1) of MiFID II; or

iii. not a qualified investor as defined in Directive 2003/71/EC (as

amended, the "Prospectus Directive")8; and

b) the expression “offer" includes the communication in any form and by

any means of sufficient information on the terms of the offer and the

Notes to be offered so as to enable an investor to decide to purchase or

subscribe the Notes9.

6 Use the first option (including the date reference) in base prospectuses/offering circulars dated

earlier than 1 January 2018. Use the second option (with no date reference) in base prospectuses/offering circulars dated 1 January 2018 or later.

7 Include this language where the base prospectus/offering circular includes a pro forma pricing supplement.

8 The three limbs and paragraph (b) have been included to ensure it is clear how both the PD public offer regime (for securities with a denomination of less than EUR 100,000 or equivalent) and the PRIIPs Regulation are being addressed.

9 Because a PD selling restriction is not required where the programme contains a blanket prohibition on the issue of notes with a denomination of less than EUR 100,000 or equivalent, paragraphs (a)(iii) and (b) (which relate to the PD public offer regime) do not need to be included where the programme contains such blanket prohibition.

Page 16: PRIIPs and the Debt Capital Markets. Practical ... and the Deb… · 1/1/2018  · PRIIPs and the Debt Capital Markets. Practical Considerations for DCM Practitioners. 1 ... target

PRIIPs and the Debt Capital Markets. Practical Considerations for DCM Practitioners 16

[Prior to 1 January 2018 [continue with existing PD public offer selling

restriction]]10

Legend

Legend for:

front cover/inside front cover of base prospectus/offering circular;

front of pro forma final terms/pricing supplement;

front of Final Terms/Pricing Supplement for offers concluded on or after

1 January 2018; and

front of Final Terms/Pricing Supplement for offers concluded before 1 January

2018 at the option of the parties.

[PROHIBITION OF SALES TO EEA RETAIL INVESTORS – The Notes are

not intended[, from 1 January 2018,]11 to be offered, sold or otherwise made

available to and[, with effect from such date,]12 should not be offered, sold or

otherwise made available to any retail investor in the European Economic Area

("EEA"). For these purposes, a retail investor means a person who is one (or

more) of: (i) a retail client as defined in point (11) of Article 4(1) of Directive

2014/65/EU ("MiFID II"); (ii) a customer within the meaning of Directive

2002/92/EC ("IMD"), where that customer would not qualify as a professional

client as defined in point (10) of Article 4(1) of MiFID II; or (iii) not a qualified

investor as defined in Directive 2003/71/EC (as amended, the "Prospectus

Directive")13. Consequently no key information document required by

Regulation (EU) No 1286/2014 (the "PRIIPs Regulation") for offering or selling

the Notes or otherwise making them available to retail investors in the EEA has

been prepared and therefore offering or selling the Notes or otherwise making

them available to any retail investor in the EEA may be unlawful under the

PRIIPS Regulation.]14

10 Do not include this language where (a) the base prospectus/offering circular is dated 1 January

2018 or later; or (b) the programme contains a blanket prohibition on the issue of notes with a denomination of less than EUR 100,000 or equivalent.

11 Do not include this date reference in (1) base prospectuses/offering circulars dated 1 January 2018 or later and pro forma final terms/pricing supplements contained in such base prospectuses/offering circulars or (2) final terms/pricing supplements for offers concluded on or after 1 January 2018.

12 Do not include this date reference in (1) base prospectuses/offering circulars dated 1 January 2018 or later and pro forma final terms/pricing supplements contained in such base prospectuses/offering circulars or (2) final terms/pricing supplements for offers concluded on or after 1 January 2018.

13 Because a PD selling restriction is not required where the programme contains a blanket prohibition on the issue of notes with a denomination of less than EUR 100,000 or equivalent, the third limb of the definition of retail investor (which relates to the PD public offer regime) does not need to be included where the programme contains such blanket prohibition.

14 Square brackets around this legend are only required in pro forma final terms/pricing supplement in base prospectuses/offering circulars dated earlier than 1 January 2018.

Page 17: PRIIPs and the Debt Capital Markets. Practical ... and the Deb… · 1/1/2018  · PRIIPs and the Debt Capital Markets. Practical Considerations for DCM Practitioners. 1 ... target

PRIIPs and the Debt Capital Markets. Practical Considerations for DCM Practitioners 17

PROGRAMME OPTION 2

PROHIBITION ON MARKETING AND SALES TO EEA RETAIL INVESTORS

FROM 1 JANUARY 2018 WITH OPTION TO SWITCH OFF PROHIBITION IN

FINAL TERMS FOR (1) “NON-PACKAGED” ISSUES UNDER

PROGRAMME TO BE SOLD TO EEA RETAIL AND/OR (2) “PACKAGED”

ISSUES UNDER PROGRAMME WITH A KID TO BE SOLD TO EEA RETAIL

Selling Restriction

In base prospectus:

Prohibition of Sales to EEA Retail Investors

[From 1 January 2018, unless]/[Unless]15 the Final Terms [(or Pricing

Supplement, as the case may be)]16 in respect of any Notes specifies the

“Prohibition of Sales to EEA Retail Investors” as “Not Applicable”, each Dealer

has represented and agreed, and each further Dealer appointed under the

Programme will be required to represent and agree, that it has not offered, sold

or otherwise made available and will not offer, sell or otherwise make available

any Notes which are the subject of the offering contemplated by [the / this]

[Offering Circular / Prospectus] as completed by the Final Terms [(or Pricing

Supplement, as the case may be)]17 in relation thereto to any retail investor in

the European Economic Area. For the purposes of this provision:

a) the expression "retail investor" means a person who is one (or more) of

the following:

i. a retail client as defined in point (11) of Article 4(1) of Directive

2014/65/EU (as amended, "MiFID II"); or

ii. a customer within the meaning of Directive 2002/92/EC (as

amended, the "Insurance Mediation Directive"), where that

customer would not qualify as a professional client as defined in

point (10) of Article 4(1) of MiFID II; or

iii. not a qualified investor as defined in Directive 2003/71/EC (as

amended, the "Prospectus Directive")18; and

b) the expression an “offer" includes the communication in any form and by

any means of sufficient information on the terms of the offer and the

15 Use the first option (including the date reference) in base prospectuses/offering circulars dated

earlier than 1 January 2018. Use the second option (with no date reference) in base prospectuses/offering circulars dated 1 January 2018 or later.

16 Include this language where the base prospectus/offering circular includes a pro forma pricing supplement.

17 Include this language where the base prospectus/offering circular includes a pro forma pricing supplement.

18 The three limbs and paragraph (b) have been included to ensure it is clear how both the PD public offer regime (for securities with a denomination of less than EUR 100,000 or equivalent) and the PRIIPs Regulation are being addressed.

Page 18: PRIIPs and the Debt Capital Markets. Practical ... and the Deb… · 1/1/2018  · PRIIPs and the Debt Capital Markets. Practical Considerations for DCM Practitioners. 1 ... target

PRIIPs and the Debt Capital Markets. Practical Considerations for DCM Practitioners 18

Notes to be offered so as to enable an investor to decide to purchase or

subscribe the Notes19.

[[Prior to 1 January 2018, and from that date if]/[If]20 the Final Terms [(or Pricing

Supplement, as the case may be)]21 in respect of any Notes specifies

“Prohibition of Sales to EEA Retail Investors” as “Not Applicable”, each Dealer

has represented and agreed [continue with existing PD public offer selling

restriction]]22

In final terms/pricing supplement:

Prohibition of Sales to EEA Retail Investors: [Applicable/Not Applicable23]

(If the offer of the Notes is

concluded prior to 1 January

2018, or on and after that

date the Notes clearly do not

constitute “packaged”

products, “Not Applicable”

should be specified. If the

offer of the Notes will be

concluded on or after 1

January 2018 and the Notes

may constitute “packaged”

products and no KID will be

prepared, “Applicable”

should be specified.)

Legend

Legend for:

front cover/inside front cover of base prospectus/offering circular;

front of pro forma final terms/pricing supplement;

19 Because a PD selling restriction is not required where the programme contains a blanket

prohibition on the issue of notes with a denomination of less than EUR 100,000 or equivalent, paragraphs (a)(iii) and (b) (which relate to the PD public offer regime) do not need to be included where the programme contains such blanket prohibition.

20 Use the first option (including the date reference) in base prospectuses/offering circulars dated earlier than 1 January 2018. Use the second option (with no date reference) in base prospectuses/offering circulars dated 1 January 2018 or later.

21 Include this language where the base prospectus/offering circular includes a pro forma pricing supplement.

22 A PD selling restriction is not required where the programme contains a blanket prohibition on the issue of notes with a denomination of less than EUR 100,000 or equivalent.

23 If on or after 1 January 2018 a KID may be produced for a particular issue under the programme and the issuer may want to restrict its obligation to update the KID to a certain period of time, consider also including the following option: “Not Applicable [from [specify date] until [specify date or a formula such as “the Issue Date” or “the date which falls [ ] Business Days thereafter]”, in which case the selling restriction and legend wording will also need to be amended to reflect the fact that they will apply outside of the time period specified as “Not Applicable” in the final terms/pricing supplement.

Page 19: PRIIPs and the Debt Capital Markets. Practical ... and the Deb… · 1/1/2018  · PRIIPs and the Debt Capital Markets. Practical Considerations for DCM Practitioners. 1 ... target

PRIIPs and the Debt Capital Markets. Practical Considerations for DCM Practitioners 19

front of Final Terms/Pricing Supplement for offers concluded on or

after 1 January 2018 if the Notes potentially constitute “packaged”

products and no KID will be prepared or the issuer wishes to prohibit

offers to EEA retail investors for any other reason; and

front of Final Terms/Pricing Supplement for offers concluded before 1

January 2018 at the option of the parties.

[[IMPORTANT – EEA RETAIL INVESTORS]24 / [PROHIBITION OF SALES

TO EEA RETAIL INVESTORS]25 - [If the Final Terms [(or Pricing Supplement,

as the case may be)]26 in respect of any Notes includes a legend entitled

"Prohibition of Sales to EEA Retail Investors", the]27/[The]28 Notes are not

intended[, from 1 January 2018,]29 to be offered, sold or otherwise made

available to and[, with effect from such date,]30 should not be offered, sold or

otherwise made available to any retail investor in the European Economic Area

("EEA"). For these purposes, a retail investor means a person who is one (or

more) of: (i) a retail client as defined in point (11) of Article 4(1) of Directive

2014/65/EU ("MiFID II"); (ii) a customer within the meaning of Directive

2002/92/EC ("IMD"), where that customer would not qualify as a professional

client as defined in point (10) of Article 4(1) of MiFID II; or (iii) not a qualified

investor as defined in Directive 2003/71/EC (as amended, the "Prospectus

Directive")31. Consequently no key information document required by

Regulation (EU) No 1286/2014 (the "PRIIPs Regulation") for offering or selling

the Notes or otherwise making them available to retail investors in the EEA has

been prepared and therefore offering or selling the Notes or otherwise making

them available to any retail investor in the EEA may be unlawful under the

PRIIPS Regulation.]32

24 To be included with the legend on the front cover/inside front cover of base prospectus/offering

circular. 25 To be included with the legend on the front of the final terms/pricing supplement. 26 Include this language where the base prospectus/offering circular includes a pro forma pricing

supplement. 27 To be included with the legend on the front cover/inside front cover of base prospectus/offering

circular. 28 To be included with the legend on the front of the final terms/pricing supplement. 29 Do not include this date reference in (1) base prospectuses/offering circulars dated 1 January

2018 or later and pro forma final terms/pricing supplements contained in such base prospectuses/offering circulars or (2) final terms/pricing supplements for offers concluded on or after 1 January 2018.

30 Do not include this date reference in (1) base prospectuses/offering circulars dated 1 January 2018 or later and pro forma final terms/pricing supplements contained in such base prospectuses/offering circulars or (2) final terms/pricing supplements for offers concluded on or after 1 January 2018.

31 Because a PD selling restriction is not required where the programme contains a blanket prohibition on the issue of notes with a denomination of less than EUR 100,000 or equivalent, the third limb of the definition of retail investor (which relates to the PD public offer regime) does not need to be included where the programme contains such blanket prohibition.

32 Square brackets around this legend are only required in pro forma final terms/pricing supplement in base prospectuses/offering circulars.

Page 20: PRIIPs and the Debt Capital Markets. Practical ... and the Deb… · 1/1/2018  · PRIIPs and the Debt Capital Markets. Practical Considerations for DCM Practitioners. 1 ... target

PRIIPs and the Debt Capital Markets. Practical Considerations for DCM Practitioners 20

STANDALONE

PROHIBITION ON MARKETING AND SALES TO EEA RETAIL INVESTORS

FROM 1 JANUARY 2018

Selling Restriction33

Prohibition of Sales to EEA Retail Investors

Each Manager has represented and agreed that it has not offered, sold or

otherwise made available and will not offer, sell or otherwise make available

any Notes to any retail investor in the European Economic Area. For the

purposes of this provision:

a) the expression "retail investor" means a person who is one (or more) of

the following:

i. a retail client as defined in point (11) of Article 4(1) of Directive

2014/65/EU (as amended, "MiFID II"); or

ii. a customer within the meaning of Directive 2002/92/EC (as

amended, the "Insurance Mediation Directive"), where that

customer would not qualify as a professional client as defined in

point (10) of Article 4(1) of MiFID II; or

iii. not a qualified investor as defined in Directive 2003/71/EC (as

amended, the "Prospectus Directive")34;and

b) the expression “offer" includes the communication in any form and by

any means of sufficient information on the terms of the offer and the

Notes to be offered so as to enable an investor to decide to purchase or

subscribe the Notes35.

Legend

Legend for front cover/inside front cover of prospectus/offering circular36

PROHIBITION OF SALES TO EEA RETAIL INVESTORS – The Notes are not

intended[, from 1 January 2018,]37 to be offered, sold or otherwise made

33 This selling restriction should be included in prospectuses/offering circulars relating to offers that

will be concluded on or after 1 January 2018 where the parties wish to restrict sales to EEA retail investors (for example, because the securities are “packaged” and the issuer will not prepare a KID). Otherwise, the existing PD public offer selling restriction should be used, if needed.

34 The three limbs and paragraph (b) have been included to ensure it is clear how both the PD public offer regime (for securities with a denomination of less than EUR 100,000 or equivalent) and the PRIIPs Regulation are being addressed.

35 Because a PD selling restriction is not required for issues of notes with a denomination of EUR 100,000 (or equivalent) or more, paragraphs (a)(iii) and (b) (which relate to the PD public offer regime) do not need to be included for issues of notes with a denomination of EUR 100,000 (or equivalent) or more.

36 For standalone prospectuses/offering circulars relating to offers that will be concluded before 1 January 2018, parties to consider whether to include this legend.

For standalone prospectuses/offering circulars relating to offers concluded on or after 1 January 2018, include this legend where the parties wish to restrict sales to EEA retail investors (for example, because the securities are “packaged” and the issuer will not prepare a KID).

37 Do not include this date reference in standalone prospectuses/offering circulars relating to offers that will be concluded on or after 1 January 2018.

Page 21: PRIIPs and the Debt Capital Markets. Practical ... and the Deb… · 1/1/2018  · PRIIPs and the Debt Capital Markets. Practical Considerations for DCM Practitioners. 1 ... target

PRIIPs and the Debt Capital Markets. Practical Considerations for DCM Practitioners 21

available to and[, with effect from such date,]38 should not be offered, sold or

otherwise made available to any retail investor in the European Economic Area

("EEA"). For these purposes, a retail investor means a person who is one (or

more) of: (i) a retail client as defined in point (11) of Article 4(1) of Directive

2014/65/EU ("MiFID II"); or (ii) a customer within the meaning of Directive

2002/92/EC ("IMD"), where that customer would not qualify as a professional

client as defined in point (10) of Article 4(1) of MiFID II; or (iii) not a qualified

investor as defined in Directive 2003/71/EC (as amended, the "Prospectus

Directive")39. Consequently no key information document required by

Regulation (EU) No 1286/2014 (the "PRIIPs Regulation") for offering or selling

the Notes or otherwise making them available to retail investors in the EEA has

been prepared and therefore offering or selling the Notes or otherwise making

them available to any retail investor in the EEA may be unlawful under the

PRIIPS Regulation.

38 Do not include this date reference in standalone prospectuses/offering circulars relating to offers

that will be concluded on or after 1 January 2018. 39 Because a PD selling restriction is not required for issues of notes with a denomination of EUR

100,000 (or equivalent) or more, the third limb of the definition of retail investor (which relates to the PD public offer regime) does not need to be included for issues of notes with a denomination of EUR 100,000 (or equivalent) or more.

Page 22: PRIIPs and the Debt Capital Markets. Practical ... and the Deb… · 1/1/2018  · PRIIPs and the Debt Capital Markets. Practical Considerations for DCM Practitioners. 1 ... target

PRIIPs and the Debt Capital Markets. Practical Considerations for DCM Practitioners. 22

Author: Catherine Wade, Kym Bavcevich-Ikeda

This publication is intended merely to highlight issues and not to be comprehensive, nor to provide legal advice. Should you have any questions on issues reported here or on other areas of law, please contact one of your regular contacts, or contact the editors.

© Linklaters LLP. All Rights reserved 2017

Linklaters LLP is a limited liability partnership registered in England and Wales with registered number OC326345. It is a law firm authorised and regulated by the Solicitors Regulation Authority. The term partner in relation to Linklaters LLP is used to refer to a member of Linklaters LLP or an employee or consultant of Linklaters LLP or any of its affiliated firms or entities with equivalent standing and qualifications. A list of the names of the members of Linklaters LLP together with a list of those non-members who are designated as partners and their professional qualifications is open to inspection at its registered office, One Silk Street, London EC2Y 8HQ or on www.linklaters.com and such persons are either solicitors, registered foreign lawyers or European lawyers.

Please refer to www.linklaters.com/regulation for important information on Linklaters LLP’s regulatory position.

We currently hold your contact details, which we use to send you newsletters such as this and for other marketing and business communications.

We use your contact details for our own internal purposes only. This information is available to our offices worldwide and to those of our associated firms.

If any of your details are incorrect or have recently changed, or if you no longer wish to receive this newsletter or other

marketing communications, please let us know by emailing us at [email protected].

Linklaters LLP

One Silk Street

London EC2Y 8HQ

Telephone (+44) 20 7456 2000

Facsimile (+44) 20 7456 2222

Linklaters.com

Key contacts

For further information, please contact:

HONG KONG

William Liu

Partner

Tel: (+852) 2901 5257 Email: [email protected]

Hwang Hwa Sim

Partner

Tel: (+852) 2842 4103 Email: [email protected]

Michael Ng

Partner

Tel: (+852) 2842 4172 Email: [email protected]

Jonathan Horan

Partner

Tel: (+852) 2901 5318 Email: [email protected]

Terence Lau

Partner

Tel: (+852) 2842 4182 Email: [email protected]

SINGAPORE

Kevin Wong

Partner

Tel: (+65) 6692 5733 Email: [email protected]

Phillip Hall

Counsel

Tel: (+65) 6692 5737 Email: [email protected]